Here’s the Key Reason Why

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Some people who are aiming to file their 2022 tax returns early next year received new advice from the Internal Revenue Service that said that they need to wait for “key documents” before filing.

The reason why, the agency said, is because some people might be receiving a Form 1099-K for the first time due to a change in tax reporting rules under the American Rescue Plan passed in 2021. People who earned over $600 in 2022 via online means will receive a 1099-K form from third-party platforms.

“The IRS cautions people in this category who may be receiving a Form 1099 for the first time–especially ‘early filers’ who typically file a tax return during the month of January or early February–to be careful and make sure they have all of their key income documents before submitting a tax return,” the agency said in a news release last week.

“A little extra caution could save people additional time and effort related to filing an amended tax return,” the IRS added, noting that they might have to “submit a tax payment with an amended tax return” if Form 1099-K or other “key income documents” are not included.

The IRS said that if information is not correct on the 1099-K, taxpayers should contact the third party that paid them, not the IRS. The name will appear in the upper left corner of the government form, it said.

Previously, IRS rules stipulated that federal Form 1099-K reporting would be mandated if there were over 200 transactions worth an aggregate income above $20,000 in a single year. That changed under the 2021 American Rescue Plan.

One accountant told CNBC on Monday that people who likely will get a 1099-K back next year should wait. Firms have a Jan. 31, 2023, deadline to send the forms.

“I would recommend waiting until at least the end of February or early March,” said Albert Campo, a certified public accountant and president of AJC Accounting Services. Some taxpayers may have moved and third-party networks don’t have the new address on file, he noted.

Another accountant, Phyllis Jo Kubey, a New York-based enrolled agent, told the cable channel that some self-preparing taxpayers “may not understand what’s reported on their 1099-K and why.” She added, “The diligence and accuracy of the 1099-K reporting under the new lower threshold remains to be seen.”

“There’s going to be confusion,” BikeList executive Dan Marx told GeekWire of the new reporting rules. “I think a big concern is that a lot of folks are going to assume that they have to pay tax when they don’t necessarily have to. It all depends how much profit you made off what you sold.”

A bipartisan group of congressional lawmakers indicated they want to change the rule, raising the threshold to $5,000 instead. Sen. Bill Hagerty (R-Tenn.) has said he wants it pushed back to $20,000.

Gifts?

The rule change does not impact gifts, the IRS stressed. “The IRS emphasizes that money received through third-party payment applications from friends and relatives as personal gifts or reimbursements for personal expenses is not taxable,” it says.

Payment services including PayPal, Venmo, and Cash App are impacted by the change.

“If you have a personal Cash App account, you will not receive a Form 1099-K from Cash App, and Cash App will not report any of your personal transactions to the IRS,” Cash App says.

And PayPal and Venmo said that users can “offer a way for customers to tag their peer-to-peer (P2P) transactions as either personal/friends and family or goods and services by choosing the appropriate category for each transaction.”

“Users should select Goods and Services whenever they are sending money to another user to purchase an item, like a couch from a local ad listing or concert tickets, or paying for a service,” the two companies said.

Another payment service, Zelle, said that it’s not affected by the change. It won’t send out a Form 1099-K, according to its website.

“Zelle does not report any transactions made on the Zelle Network to the IRS, even if the total is more than $600,” it says on its website. “The law requiring certain payment networks to provide forms 1099K for information reporting does not apply to the Zelle Network. If payments you receive on the Zelle Network are taxable, it is your responsibility to report them to the IRS.”

Jack Phillips

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Jack Phillips is a senior reporter for The Epoch Times based in New York. He covers breaking news.



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